CRA has passed legislation, called tax payer tax relief provision, that provides CRA with the discretion to cancel or waive any penalties or interest when a taxpayer is unable to meet his/her tax obligations due to circumstances beyond their control.

CRA will consider the request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which the tax payer makes his/her request.

The taxpayer can make the request by filling out form RC4288 Request for Taxpayer Relief – Cancel or Waive Penalties or Interest.

You may have to pay a penalty if you, knowingly or under circumstances amounting to gross negligence, have made a false statement or omitted information on your current tax return.  This penalty is equal to the greater of $100 or 50% of the understated tax and /or overstated credits related to the false statement or omission.  However, if you voluntarily advise CRA about the amount you failed to report and /or credits you overstated, CRA may waive the penalty.  For more info, see Voluntary Disclosure Program

If you failed to report an income amount on your current return AND you also failed to report that same income on any return in the prior three years, you may have to pay a federal and provincial repeated failure to report income penalty.  If you did not report an amount of income of $500 or more for a tax year, it will be considered a failure to report income.

The federal and provincial penalties are each equal to the lesser of : 10% of amount you failed to report on your current year return or 50% of the difference between the understated tax related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.

However, if you voluntarily advise CRA about the amount you failed to report, CRA may waive these penalties.

For more information see “voluntary disclosure program”

If you have a balance owing from a previous year, CRA will charge interest compounded daily starting May 1st of the following year.  This interest is calculated on any unpaid amounts due for previous year(s) including any balances owing if you were reassessed for a previous return.  For example, at May 1st you owe $1000.  CRA rates do change every 3 months but let’s use 10% interest for our example.  May 1 your total interest on $1000 would be $.27.  May 2 your interest on 1000.27 would be $.27.  May 3 your interest on $1000.54 would be $.27.  This will keep going until you pay your amount in full.

As for late filing penalties, it is 5% of your total current tax balance owing plus 1 % of balance owing for each full month your return is late to a maximum of 12 months.  If CRA charged a late filling penalty for any of the previous 3 years, your penalty for the current period may be up to 10% of your current balance owing plus 2% for each full month your return is late for a maximum of 20 months.  For example, your 2017 tax return is late by 15 months.  Your total owing is $1000.  Your late filing penalty is 5% of $1000 $50 plus 1% a month for 12 months $10 x 12 = $120.  Total late filing penalty is $170 plus interest.  Now imagine that penalty amount on a debt of $10,000.

Why would anyone want to pay CRA more money than they need to by filing late?  However, if you are owed a refund on your return, there is NO late filing penalty or interest owed.

I often get approached by my tax clients with the following question – what is better for me – investing my money in an RRSP or a TFSA?

My reply – it all depends on your tax situation and your goals.

Let me expand a bit on that:

For most people, saving for your retirement by investing in an RRSP is a much better option than saving in a TFSA.  Let me explain why.

When you invest in an RRSP, you will receive a tax break during the year of contribution.  Most people who contribute are in a higher tax bracket so the tax savings can be considerable (as much as $.40 for every $1 invested).

The goal is to keep the RRSP investment for the long run.  Eventually, when you withdraw the RRSP, you will have to pay taxes on that money.  However, in today’s society, many people do not have a pension plan with their employer.  That means, when they retire, most will only collect  CPP and OAS as well as whatever money they withdraw from their RRSPs.  This often leaves them in the lowest tax bracket.  They may have enjoyed a tax savings of 40% in their contributing year but they are now paying 15% in the year of withdrawal.  This results in a tax saving of 25% over the life of the investment.  These amounts are based on the current tax rates and may change over the years.

TFSA investments usually provide a higher interest rate than a regular savings account and the interest earned is not included on your tax return as income (hence the name of tax free savings account).  You can maximize your savings by maxing out your contribution limit every year.  The main differences between a TFSA investment and a RRSP investment is this: your TFSA investment does not provide a tax savings in the year of contribution (disadvantage) but there is no taxes to pay when you make a withdrawal (advantage).

TFSA investments do have 2 main advantages: 1) if you want to save for a large purchase, place your money in a TFSA and pull it out when you have saved up enough for your purchase and 2) if you plan on improving your lifestyle in your retirement years, you may want to have the money available at your convenience instead of having it locked in an RRSP.

In summary, most people will benefit from the tax savings in an RRSP as long as they leave the investment in the RRSP until retirement.  However, if you make it a habit of contributing for a few years and then withdrawing the investment (often resulting in paying a higher tax rate in the year of withdrawal than the tax savings in the year of investment, thus defeating the purpose of an RRSP), then a TFSA investment is better for you.

I hope that this has helped to clarify the main advantages and disadvantages of investing your money in an RRSP or a TFSA.